1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended July 31, 2001 Commission File Number 0-23248 SigmaTron International, Inc. - -------------------------------------------------------------------------------- (Exact Name of Registrant, as Specified in its Charter) Delaware 36-3918470 - -------------------------------------------------------------------------------- (State or other Jurisdiction of Incorporation (I.R.S. Employer or Organization) Identification Number) 2201 Landmeier Road, Elk Grove Village, Illinois 60007 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) Registrant's Telephone Number, Including Area Code: (847) 956-8000 No Change - -------------------------------------------------------------------------------- (Former Name, Address, or Fiscal Year, if Changed Since Last Reports) Indicate, by check mark, whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- On September 10, 2001 there were 2,881,227 shares of the Registrant's Common Stock outstanding.
2 SigmaTron International, Inc. Index PART I. FINANCIAL INFORMATION Page No. -------- Item 1. Consolidated Financial Statements Consolidated Balance Sheets - July 31, 2001 and April 30, 2001 3 Consolidated Statements of Operations - Three Months Ended July 31, 2001 and 2000 4 Consolidated Statements of Cash Flow - Three Months Ended July 31, 2001 and 2000 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures about Market Risks 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 10
3 SIGMATRON INTERNATIONAL, INC. Consolidated Balance Sheet <TABLE> <CAPTION> JULY 31, April 30, 2001 2001 ------------ ------------- <S> <C> <C> ASSETS (UNAUDITED) Current assets: Cash $ 2,500 $ 2,500 Accounts receivable, less allowance for doubtful accounts of $124,782 at July 31, 2001 and April 30, 2001 10,527,363 10,441,857 Inventories 16,272,780 17,708,733 Prepaid and other assets 664,249 616,870 Refundable income taxes 740,832 680,825 Deferred income taxes 734,289 561,128 Other receivables 354,885 635,942 ------------ ------------- Total current assets 29,296,898 30,647,855 Machinery and equipment, net 13,370,616 13,762,439 Due from SMTU: Investment and advances 1,080,240 977,356 Equipment receivable 3,194,419 3,371,006 Other receivable 761,665 788,649 Other assets 1,360,783 1,388,485 ------------ ------------- Total assets $49,064,621 $50,935,790 ============ ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable 8,171,637 7,803,584 Trade accounts payable - Related parties 155,000 767,075 Accrued expenses 1,647,736 1,930,194 Notes payable- Banks 15,838,825 16,406,414 Other liabilities - Related party 36,180 172,051 Capital lease obligations 1,329,670 1,612,613 ------------ ------------- Total current liabilities 27,179,048 28,691,931 Capital lease obligations, less current portion 1,897,477 1,984,921 Deferred income taxes 1,347,563 1,347,563 ------------ ------------- Total liabilities 30,424,088 32,024,415 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 500,000 shares authorized, none issued and outstanding - - Common stock, $.01 par value; 6,000,000 shares authorized, 2,881,227 shares issued and outstanding 28,812 28,812 at July 31, 2001 and April 30, 2001 Capital in excess of par value 9,436,554 9,436,554 Retained earnings 9,175,167 9,446,009 ------------ ------------- Total stockholders' equity 18,640,533 18,911,375 Total liabilities and stockholders' equity $49,064,621 $50,935,790 ============ ============= </TABLE> See accompanying notes. 3
4 SIGMATRON INTERNATIONAL, INC. Consolidated Statements Of Operations Unaudited <TABLE> <CAPTION> Three Months THREE MONTHS Ended ENDED July 31, 2000 JULY 31, 2001 RESTATED (SEE NOTE E) ------------- -------------------- <S> <C> <C> Net sales $17,114,358 $16,824,889 Cost of products sold 15,977,254 16,954,328 ------------- -------------------- 1,137,104 (129,439) Selling and administrative expenses 1,394,318 1,324,813 Operating (loss) income (257,214) (1,454,252) Equity in net (income) of SMTU (102,886) (229,141) Interest expense - Banks and capital lease obligations 405,099 426,413 Interest income - SMTU and LC (115,424) (113,648) ------------- -------------------- Loss before income tax benefit (444,003) (1,537,876) Income tax benefit 173,161 599,772 ------------- -------------------- Net loss ($270,842) ($938,104) ============= ==================== Net loss per common share - Basic ($0.09) ($0.33) ============= ==================== Net loss per common share - Assuming dilution ($0.09) ($0.33) ============= ==================== </TABLE> See accompanying notes. 4
5 SIGMATRON INTERNATIONAL, INC. Consolidated Statements of Cash Flow Unaudited <TABLE> <CAPTION> THREE MONTHS ENDED JULY 31, 2000 2001 RESTATED (SEE NOTE E) ----------- -------------------- <S> <C> <C> OPERATING ACTIVITIES: Net (loss) income ($270,842) ($578,689) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 507,449 474,362 Equity in net (income) loss of SMTU (102,886) (229,141) Deferred income taxes (173,161) - Changes in operating assets and liabilities: Accounts receivable (85,503) 380,339 Inventories 1,435,953 (1,258,443) Prepaid expenses and other assets 464,952 155,940 Refundable income taxes (60,007) - Trade accounts payable 368,053 1,491,949 Trade accounts payable - related parties (747,946) 242,479 Accrued expenses (282,458) (325,188) ----------- ------------------ Net cash provided by operating activities 1,053,604 353,608 INVESTING ACTIVITIES: Purchases of machinery and equipment (115,628) (219,326) ----------- ------------------ Net cash used in investing activities (115,628) (219,326) FINANCING ACTIVITIES: Net payments under capital lease obligations (370,387) (457,859) Net (payments) proceeds under line of credit (567,589) 323,577 ----------- ------------------ Net cash used in financing activities (937,976) (134,282) Change in cash 0 0 Cash at beginning of period 2,500 2,500 ----------- ------------------ Cash at end of period $2,500 $2,500 =========== ================== </TABLE> See accompanying notes. 5
6 SigmaTron International, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) July 31, 2001 NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The Consolidated Statement of Operations for July 31, 2000 and the Consolidated Statement of Cash Flow for the period ended July 31, 2000, as restated for fiscal 2001. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended July 31, 2001 are not necessarily indicative of the results that may be expected for the year ending April 30, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Form 10-K for the year ended April 30, 2001. NOTE B - INVENTORIES The components of inventory consist of the following: July 31, April 30, 2001 2001 ------------------- ------------------- Finished products $ 2,862,268 $ 3,428,346 Work-in-process 1,870,466 2,152,894 Raw materials 11,540,046 12,127,493 ------------------- ------------------- $16,272,780 $17,708,733 =================== =================== NOTE C - SMT UNLIMITED L.P. The Company owns 42.5% of SMT Unlimited L.P. ("SMTU"), an affiliate with manufacturing facilities in Fremont and Hollister, California. SMTU is a electronic manufacturing services provider. The following is the summarized income statement information for SMTU: 6
7 Three Months Ended July 31, 2001 2000 ----------------- ----------------- Revenues $3,959,402 $10,555,543 Cost and expenses 3,717,320 10,003,396 ----------------- ----------------- Pre-tax income $ 242,082 $ 552,147 ================= ================= In August 1999, the Company entered into a guaranty agreement with SMTU's lender to guaranty the obligation of SMTU under its revolving line of credit to a maximum of $2,000,000 plus interest and related costs associated with the enforcement of the guaranty. In connection with the guaranty agreement, one of the limited partners of SMTU and a Vice President of SMTU have each executed a guaranty to the lender to reimburse the Company for up to $500,000 of payments made by the Company under its guaranty to the lender in excess of $1,000,000. In addition, the limited partner has agreed to indemnify the Company for 50% of all payments made on behalf of SMTU to the lender. The limited partner's obligation to the Company under the indemnity is reduced dollar for dollar to the extent the limited partner would otherwise be obligated to pay more than $1,000,000 as a result of his guaranty to the lender. As of the date of this report SMTU was in violation of its financial covenants for the period ended April 30, 2001. NOTE D - LINE OF CREDIT In August 1999, the Company entered into a two year credit arrangement, which is comprised of a $25 million revolving loan facility and a term loan. The $25 million facility line was decreased to $20 million in August 2001. The revolving loan facility is collateralized under a loan and security agreement by substantially all of the domestically located assets and inventory located in Mexico. As of the date of this report the Company was in violation of its financial covenants for the quarters ended July 31, 2000, October 31, 2000, January 31, 200l, and April 30, 2001. On February 1, 200l, the Company entered into a forbearance agreement with its lenders. Under the terms of the forbearance agreement the credit arrangement has been extended until October 31, 2001, and the Company is required to pay additional interest of 1.50 basis points on prime-based borrowings. The outstanding loan balance of $15,838,825 and $16,406,414 has been classified as short-term in the Company's balance sheet at July 31, 2001 and April 30, 2001, respectively. The Company is seeking alternative financing although there can be no assurance it will be obtained. NOTE E - RESTATEMENT The Company is restating its Consolidated Statement of Operations and Consolidated Statement of Cash Flow for the three months ended July, 2000. This restatement corrects the timing and the amount of revenue recognized in connection with a customer agreement. The adjustment resulted in a reduction in revenue, gross margin, net loss per share of $641,224, $359,415 and $0.13, respectively in the first quarter. 7
8 NOTE F - FINANCIAL CONDITION Due to the recent downturn in the economy, which has significantly affected the electronic industry, the Company experienced significantly lower sales and increased losses for the last several months of fiscal 2001. In an effort to mitigate some of its losses, the Company substantially downsized its work force and reduced overhead expenses during fiscal 2001. The Company has not complied with certain covenants of loan agreements with banks and has begun a search for a new secured lender but has been unsuccessful to date. In addition, the Company has entered into discussions with third parties regarding a potential merger or sale of the Company or an equity investment in the Company. Talks are ongoing and, while significant levels of interest have been shown it is too early to determine if any of the Company's discussions will result in a transaction. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NOTE: To the extent any statements in this quarterly statement may be deemed to be forward looking, such statements should be evaluated in the context of the risks and uncertainties inherent in the Company's business, including the Company's continued dependence on certain significant customers; the continued market acceptance of products and services offered by the Company and its customers; the continued market acceptance of products and services offered by the Company and its customers; the activities of competitors, some of which may have greater financial or other resources than the Company; the variability of the Company's operating results; the availability and cost of necessary components; the continued availability and sufficiency of the Company's credit arrangements; changes in U.S. or Mexican regulations affecting the Company's business; the continued stability of the Mexican economic, labor and political conditions and the ability of the Company to manage its growth and secure financing. These and other factors which may affect the Company's future business and results of operations are identified throughout its Form 10-K and in the prospectus issued in connection with the Company's February 1994 initial public offering of securities (Registration No. 33-72100), and may be detailed from time to time in the Company's filings with the Securities and Exchange Commission. These statements speak as of the date of this report and the Company undertakes no obligation to update such statements in light of future events or otherwise. RESULTS OF OPERATIONS: Net sales increased for the three month period ended July 31, 2001 to $17,114,358 from $16,824,889 for the three month period ended July 31, 2000 as restated, a year ago. Sales can be misleading as an indication of the Company's financial performance. Gross profit margins can vary considerably among customers and products depending on the type of services rendered by the Company, specifically the variation of orders for turnkey services versus consignment services. Variations in the number of turnkey orders compared to consignment 8
9 orders can lead to significant fluctuations in the Company's revenue levels and margins. Further, generally customers' orders can be delayed, rescheduled or canceled at any time, which can significantly impact the operating results of the Company. In addition, the ability to replace such delayed or lost sales in a short period of time cannot be assured. Gross profit increased during the three month period ended July 31, 2001 to $1,137,104 or 6.6% of net sales, compared to a loss of $129,439 for the same period in the prior fiscal year, as restated in 2000. The increase in the Company's gross margin for the three months ended July 31, 2001 reflects a number of factors, which can vary from period to period, labor cost and inefficiencies, component pricing and capacity utilization. Management has taken steps to align its overhead structure with current customer demands, including workforce reductions. The Company continues to evaluate its current manufacturing issues, which could result in additional workforce and overhead reductions. Selling and administrative expenses increased to $1,394,318 or 8.1% of net sales for the three month period ended July 31, 2001 compared to $1,324,813 or 7.6% of net sales in the same period last year. The increase is primarily due to the addition of an information technology department. Interest expense for bank debt and capital lease obligations for the three month period ended July 31, 2001 was $405,099 compared to $426,413 for the same period in the prior year. This decrease was attributable to a decrease in interest expense for the credit facility. As a result of the factors described above, the net loss decreased to $270,842 for the three month period ended July 31, 2001 compared to a net loss of $938,104 for the same period in the prior year, as restated in 2000. Basic and dilutive earnings per share for the first fiscal quarter of 2001 were $0.09 compared to $0.33 for the same period in the prior year, as restated in 2000. LIQUIDITY AND CAPITAL RESOURCES: For the three months ended July 31, 2001 the primary source of liquidity was cash provided by operations. Cash provided by operating activities was $1,053,604 compared to $353,608 in the comparable period in fiscal 2001. Cash provided by operating activities was primarily due to a decrease in inventory. Cash flow used in investing activities totaled $115,628 for the three months ended July 31, 2001, which relates to purchases of machinery and equipment. In August 1999, the Company entered into a two year credit arrangement, which is comprised of a $25 million revolving loan facility and a term loan. The $25 million facility line was decreased to $20 million in August 2001. The revolving loan facility is collateralized under a loan and security agreement by substantially all of the domestically located assets and inventory located in Mexico. As of the date of this report the Company was in violation of its financial covenants for the quarters ended July 31, 2000, October 31, 2000, January 31, 200l, 9
10 and April 30, 2001. On February 1, 200l, the Company entered into a forbearance agreement with its lenders. Under the terms of the forbearance agreement, the credit arrangement has been extended until October 31, 2001, and the Company is required to pay additional interest of 1.50 basis points on prime-based borrowings. The outstanding loan balance of $15,838,825 and $16,406,414 has been classified as short-term in the Company's balance sheet at July 31, 2001 and April 30, 2001, respectively. The Company is seeking alternative financing although there can be no assurance it will be obtained. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Not applicable PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) No report on Form 8-K was filed during the quarter ended July 31, 2001. 10
11 SIGNATURES: Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGMATRON INTERNATIONAL, INC. /s/ Gary R. Fairhead 9/13/01 - ------------------------------------------------ -------------------------- Gary R. Fairhead Date President and CEO (Principal Executive Officer) /s/ Linda K. Blake 9/13/01 - ------------------------------------------------ -------------------------- Linda K. Blake Date Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer)